Soft Landing Predicted for U.S. Housing
May 1, 2006
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After soaring to record levels for 3 consecutive years, the single-family housing market is gliding toward a "soft landing" in 2006, as rising interest rates, affordability issues and a reduced role for investors/speculators contribute to a softening in demand, according to economists at the National Association of Home Builders (NAHB) Construction Forecast Conference.

"After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition. Sales and starts are trending lower toward more sustainable levels," said NAHB Chief Economist David Seiders. Even so, the slowing housing market is not likely to derail the expansion as housing yields its position as the economy's major growth engine to other sectors, he added.

Economists agreed that the Fed will raise its benchmark short-term rate to 5 percent at its May 10 meeting, which would be the 16th consecutive quarter-percentage point increase since the Fed started lifting it from 1 percent in June of 2004.

Looking to the future, Seiders said that new home sales in the first quarter of this year were down 10 percent from the fourth quarter in 2005, and that he expects them to ease further in the coming months before leveling off in 2007.

NAHB is forecasting that new home sales will hit 1.13 million units in 2006, down 12 percent from last year's all-time high of 1.28 million units, and then move down slightly in 2007 to 1.09 million. After posting a record 1.716 million single-family starts in 2005, NAHB is predicting that new home construction will level off to 1.595 million units in 2006 and 1.488 million in 2007, which would still rank high by historical standards.

Seiders added that the multifamily market has remained "eerily stable" since the late 1990s, and is expected to continue the same pattern in 2006, with starts dropping slightly to 351,000 apartment units from 355,000 last year.

The rental market has solidified, and Seiders said he expects it to regain some ground while the red-hot condo markets start to cool. Seiders is also predicting that residential remodeling expenditures will continue on an upward trajectory, in part because "an immense amount of home equity will continue to support this spending."

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